The effects of platform openness on app stores and other digital platforms

As the internet has matured, digital platforms (such as app stores) have grown to play a critical role in commerce. The platforms’ decisions on how to structure and govern themselves can have serious implications for external parties (such as users and third-party apps), impacting competition, choice, privacy, and security. This blog will explore issues of platform openness for digital platforms to better understand what they mean for users and the policy implications that accompany them.

Platform Openness and Gatekeeping

A critical decision that digital platforms make is their degree of openness. Platform openness is a measure of how much a platform places restrictions on external parties. For instance, an app store that restricts itself to only a few select third-party app makers is less open than one that allows anyone to make apps for it. By deciding what products to allow on a digital platform, a platform owner influences the number and type of options consumers have access to. Open platforms can foster more choice and competition on a platform, but they can also limit a platform’s ability to place restrictions for the purposes of protecting privacy, security, or content moderation.

The appropriate level of platform openness varies for consumers depending on their personal preferences. For instance, one consumer might want to dramatically limit the number of applications on their device due to security concerns, while another might want more choice of applications and a less strict screening process. Platforms with differing levels of openness compete with each other in the broader marketplace and the level of competition can affect the likelihood of anticompetitive behavior.

The level of competition and anticompetitive behavior in a sector can be difficult to decipher. In a competitive market, the number of platforms and their degree of openness can vary based on different consumer preferences. Competition resulting from these differences can serve as a deterrent to anticompetitive behavior, since users and third parties can more easily switch away from a platform that abuses its gatekeeping powers. With a handful of key platforms involved in a large share of the functions performed on the modern internet, fierce debate exists over the competitiveness of the markets they are in, their level of market power, and whether they are abusing it for anticompetitive purposes. Advocates of stricter regulation say that these digital platforms possess considerable market power because of their large user base and that those operating more closed systems can more easily abuse third parties operating on the platform by placing anticompetitive restrictions on them. Spotify has criticized app store policies and alleged Apple has acted in an anticompetitive manner with their gatekeeping power and the 30% fee they charge apps like theirs, particularly given their operation of a direct competitor, Apple Music. Apple disputes this characterization and argues that “Spotify wouldn’t be the business they are today without the App Store ecosystem, but now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs.”

Closed platforms can use their “gatekeeping” capabilities for anticompetitive purposes or leverage it for pro-consumer reasons, but it can often be hard to tell when they engage in gatekeeping activity that benefits or harms consumers. For instance, it might be hard to tell whether a dominant platform is restricting applications due to significant security concerns their users have or the platform is abusing its market power for anticompetitive purposes. A platform is likely to give a pro-consumer reason, even when engaging in anticompetitive behavior, so policymakers might have difficulty ascertaining the costs and benefits of such a decision.

Current Legislation

Debate exists among policymakers about the role that closed platforms play in the market, their benefits and downsides, and whether additional legislative action is necessary for addressing any alleged or potential anticompetitive behavior. Opponents of additional legislation say that existing competition regulation is adequate to address any potential antitrust issues, while proponents say that current practices in the market necessitate new regulations.

In Congress, recently introduced legislation like the bipartisan Open App Markets Act aims to change the openness of digital app stores. More specifically, they target “covered companies” operating an app store with more than 50 million U.S. users. If passed, the legislation would require platforms to give users the ability to install apps through third-party stores (a process known as sideloading) and to use alternate payment processing systems in their apps, bypassing commission fees like the ones used by Apple and Google. The bill includes certain exceptions, such as those for behaviors which “prevent spam or fraud” or are “necessary to achieve user privacy, security or digital safety.” Proponents argue the bill will increase choice, boost innovation, and benefit consumers, while opponents counter the bill will have unintended consequences that hurt competition, lessen quality, reduce choice, and introduce more security risks.

The ACCESS act is another bill recently reintroduced in the Senate that would impose interoperability and data portability mandates on certain digital platforms. For “covered platforms”, it would require services to be “interoperable with competing communications platforms” and to “permit users to easily port their personal data” in a common and machine-readable format, though it does provide limited exceptions, such as those for protecting user security. Advocates say that the bill helps to boost competition and benefits consumers by increasing access and lowering switching costs. In contrast, opponents have expressed skepticism of proponents’ claims and criticized the bill’s choice of metrics to determine what platforms are covered and a lack of specificity in the language describing its interoperability and portability requirements.

Policy Considerations and Conclusion

As policymakers debate regulating platform openness, they should consider privacy, security, content, user choice, and existing laws. Legislation affecting platforms’ ability to regulate content and the goods and services sold on them can have significant ramifications for privacy, security, and content moderation. Understanding the benefits and drawbacks of both open and closed platforms is critical. With online platforms poised to remain highly influential, policymakers should consider existing laws and the relevant tradeoffs and challenges with modifying them or creating new laws.